The higher the LTV and the lower the CAC, the faster the businesses will grow. A good rule of thumb is that the ratio of lifetime value to customer acquisition cost should be at least 3:1. ![]() It’s an important metric as it costs less to keep existing customers than it does to acquire new ones, so increasing the value of your existing customers is a great way to drive growth. LTV is typically calculated as (Revenue Per Customer * Gross Margin) / Revenue Churn Rate. LTV is the total worth of a customer to the business over the whole period of their relationship. It can be a useful metric for evaluating the efficiency and effectiveness of the company’s marketing and sales efforts.Ĭustomer Lifetime Value (LTV). To calculate CAC, you add up the costs associated with acquiring new customers (the amount spent on marketing and sales) and then divide that amount by the number of customers you acquired. CAC is the cost of acquiring new customers, calculated by looking at the months of subscription gross margin to recover the fully-loaded cost of acquiring a customer. A study by Gainsight showed that a 1% increase in NRR could translate to $700M in enterprise value.Ĭustomer Acquisition Cost (CAC). Some of the top IPOs in the last few years (Twilio, Slack, Snowflake, PagerDuty) had well over 120% in NRR. NRR can tell you about the growth potential of a business. It measures the revenue from existing customers after churn and inclusive of upsells and expansion. It’s a good signal of the health of the customer base and the recurring revenue. NRR focuses on the existing customer base.
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